Investors in JK Cement Ltd are sitting on handsome gains, with its shares rallied 62% over the past year due to a combination of factors that could boost its earnings performance. Amid increased competition, timely capacity additions and strategic regional diversification boosted JK Cement’s prospects, and gray cement volume growth was good. The company guided for double-digit volume growth in gray cement in FY24, faster than the industry’s expected single-digit growth.
JK Cement surprised analysts by commissioning its green integrated cement plant at Panna, Madhya Pradesh, within 18 months and raising capacity utilization to around 90% within a year, a Motilal Oswal Financial Services report said.
The company expanded its dealership network and, through robust marketing campaigns, tapped new markets in central India. Motilal Oswal estimates that JK Cement will clock around 14% compound annual growth rate in gray cement volume from FY23 to FY26, higher than the industry. Last week the company completed the acquisition of Toshali Cement from Odhisha to expand its footprint in the eastern market.
JK Cement also remains focused on optimization measures with the implementation of waste heat recovery and an increasing share of green energy/alternative fuels in its fuel mix. These should help reduce its operating costs and carbon footprint.
So far so good, but higher capital expenditure (capex), mostly for new capacity addition, could keep debt elevated in the medium term. The company just announced ₹2,850 crore capital for an additional six million tonnes per annum of capacity, financed by debt and internal accruals.
The company planned a capex of ₹1,200 crore in FY24, ₹2,200 crore in FY25, and ₹1,800 crore in FY26. At the end of December 2023, its gross debt stood at ₹4,585 crore, and this is expected to peak at ₹5,600 crore by FY26.
“New capital will help JK Cement maintain its consistent volume growth in its existing market and entering Bihar would enhance its revenue diversification and provide impetus for growth. So, we have revised our Ebitda estimate for FY25 and FY26 higher by 16% and 15%, but EV /Ebitda valuation of 16.5 times is expensive,” said Mangesh Bhadang, senior vice president of Centrum Broking Ltd.
Meanwhile, the paint segment continues to record operating losses thanks to higher branding costs. The management expects it to reach Ebitda break-even by FY26. But whether it is able to achieve that remains to be seen, as the competition in the paint business has shot up with the entry of new companies.